The Battle For “Material And Adverse”: A Tale Of Two Florida Appellate Courts, And Two Florida Condominiums

One of the more popular articles on this blog provides a short discussion of Florida case law on what constitutes a material and adverse change to a condominium purchase agreement sufficient for the buyer to rescind the contract and recover his or her deposit money.  Here, in an effort to get a clearer sense of how the law may evolve in the coming months and years — which, of course, is of deep interest to many people who may be wondering whether they have a basis to seek cancellation of their condo purchase agreements — I take a deeper look at two current and key cases on the issue which are now working their way through the Florida appellate system.

The D & T Properties v. Marina Grande Associates, Ltd. case, which was decided in Palm Beach County and is currently on appeal in the Fourth District Court of Appeal, has been reported in the media as a decision unfavorable to condo purchasers in its finding that an increase in assessments associated with rising expenses for property insurance and utilities did not entitle the purchaser to cancel the contract.  While I briefly touched upon this case in my prior article on the law of material and adverse changes, I have now had a chance to study in depth the trial court’s 8-page final order, and can now report with confidence that the decision — if affirmed by the Fourth District — will certainly make things more difficult for buyers seeking to cancel.

In his opinion, Judge Jonathan D. Gerber found that section 718.503, Florida Statutes is ambiguous on its face in setting forth that the determination of whether any contractual changes are material and adverse must be conducted with respect to how those changes affect “the buyer.”  In other words, the Court found that the statute itself doesn’t answer the question of “who” the buyer is for the purpose of deciding whether a change is material and adverse.  As such, the Court found it necessary to fill in the gap with its own analysis.  It then reasoned that there were three possibilities: (1) changes are material and adverse for any buyer who claims they are; (2) changes are material and adverse where a “hypothetically reasonable buyer” would find them to be such; and (3) changes are material and adverse based on “an objective consideration of that buyer’s specific situation or financial condition.”  The Court rejected the first possibility as making it too easy to cancel a contract, and rejected the second possibility as too “unpredictabl[e].”  Accordingly, the Court found that whether a change is material and adverse must depend upon the specific situation or financial condition of the buyer in question, the upshot being that if the purchaser can bear the increased assessments, the changes in question are not material and adverse.

Before the Marina Grande decision came down in Palm Beach County, however, another condo case, Stafford v. WCI Communities, Inc.,  was decided on the other coast of Florida — in Hillsborough County (Tampa) — by Judge Claudia R. Isom, with a much different outcome.  Like Marina Grande, Stafford also involved an increased assessment burden for the unit purchasers.  But Judge Isom found that the issue of whether the buyer seeking to cancel his contract could afford this increased burden was immaterial, and that “the Plaintiff’s subjective intent or state of mind is irrelevant,” and therefore ruled in favor of the buyer.  While there is no written opinion in Stafford, as there is in Marina Grande, the transcript reveals that the defendant’s attorney in Stafford proffered the same kind of analysis relying on the buyer’s “specific situation or financial condition” which was to be adopted by Judge Gerber in Marina Grande, but ultimately rejected by Judge Isom.

As between the two rulings, while the Marina Grande opinion is more systematically laid out, in my view, Stafford reaches the correct result.  It is simply unclear to me why Judge Gerber believes that making a determination based upon the specific situation or financial condition of each buyer is any more predictable than adopting a uniform “hypothetically reasonable buyer” standard, especially since the former approach yields different results based on circumstances which are unknown to the seller at the time the contract is entered into (i.e., each buyer’s financial means).  Moreover, those circumstances can fluctuate after the contract is entered into, meaning that under the Marina Grande holding, changes which are not material or adverse to a buyer at one point in time could become material and adverse if the buyer suddenly suffers a personal financial loss prior to  the time he or she has to close on the condo.  Finally, there is something fundamentally unfair about the law treating buyers differently based upon their respective personal financial situations, which seems contrary to the purpose of the statute to protect condo buyers in general.

In any event, the Second and Fourth District Courts of Appeal will have the next say in the matter, but this could be many months away as the online dockets show that both cases still have some appellate briefing to complete.  And, interestingly but not surprisingly, it appears that the Builders Association of South Florida has moved to file an amicus brief in the Marina Grande appeal (it’s not too hard to guess which side they will support).  An intriguing possibility is that the appellate courts will differ with one another on the issue, meaning that the Florida Supreme Court could ultimately have the final word. 

One thing is certain, however.  Developers and buyers alike will be monitoring developments in these cases (and others like them) with great and pressing interest.

By Jared H. Beck, Esq.

This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.

Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. A significant portion of his practice is devoted to issues arising under condominium purchase agreements. He can be reached at 305-789-0072 or jared@beckandlee.com

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3 comments

  1. Magic City Harvard Lawyer

    Thanks for the pointer. The article is a good reminder that the Florida condo market phenomenon was and is more complex than the dueling variables of buyers and developers, but also includes banks and others who were looking to cash in big and quickly. It will be interesting to see how the legal ramifications of the latter aspect play out.

  2. Pingback: Singer Island Resort Buyers File Securities Class Action Against WCI Communities « The Magic City Harvard Lawyer: A High-Octane, Unfiltered Report From Miami, Florida

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